Discussion of an Economic Framework for Conservative Accounting and Bushman and Piotroski (2006)

31 Pages Posted: 24 Feb 2006

See all articles by Wayne R. Guay

Wayne R. Guay

University of Pennsylvania - Accounting Department

Robert E. Verrecchia

University of Pennsylvania - Accounting Department

Date Written: February 6, 2006

Abstract

We offer an economic framework for generating predictions about the demand for conservative accounting reports. We define conservatism as: More timely recognition of losses than gains as a result of the costs and benefits of reporting verifiable information by managers and/or firms being asymmetric. We also discuss Bushman and Piotroski's interpretation of the speeds of "good news recognition" and "incremental bad news recognition" in "Basu-type" regressions as separate signals about accounting conservatism. Finally, we suggest avenues for future research that seeks to investigate the links between institutions and contracts, and between contracts and conservatism.

Keywords: Financial reporting, conservatism, timeliness of loss and gain recognition, international accounting, political and legal institutions, contracting, compensation and incentives, debt contracts

JEL Classification: M41, M44, K22, G15, G38, O57, M40, F30, G28

Suggested Citation

Guay, Wayne R. and Verrecchia, Robert E., Discussion of an Economic Framework for Conservative Accounting and Bushman and Piotroski (2006) (February 6, 2006). Journal of Accounting & Economics (JAE). Available at SSRN: https://ssrn.com/abstract=884302 or http://dx.doi.org/10.2139/ssrn.884302

Wayne R. Guay (Contact Author)

University of Pennsylvania - Accounting Department ( email )

3641 Locust Walk
1329 Steinberg-Dietrich Hall
Philadelphia, PA 19104-6365
United States
215-898-7775 (Phone)
215-573-2054 (Fax)

Robert E. Verrecchia

University of Pennsylvania - Accounting Department ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States
215-898-6976 (Phone)
215-573-2054 (Fax)

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